–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

The next time you take your child to a doctor, scrutinize carefully the doctor’s bill. What it won’t tell you is that an average of 10 cents out of every dollar you pay goes to the malpractice insurance doctors must have to protect themselves in case a patient sues them.

Malpractice premiums cost some doctors many tens of thousands of dollars a year, not because an individual doctor has a history of making mistakes, but because in some states juries make excessively generous awards knowing that insurance companies pay.

Medical specialties with the highest premiums include obstetrics and neurosurgery. Malpractice insurance premiums for obstetricians range from $200,000 per year in high-cost states to $20,000 annually in low-cost states. Resolving a suit takes at least three years, taking physicians’ time away from the practice of medicine.

According to Towers Perrin, a global professional services firm, malpractice litigation costs $30 billion a year, and, since 1975, direct costs of litigation avoidance have grown at more than 10 percent annually.

But that’s less than half the story. To avoid being sued, doctors view patients with two sets of eyes. One set is the caring, compassionate, medical professional. The other set is a defensive strategist, looking at an individual who tomorrow may call a lawyer to sue. And, to be fair, sometimes doctors make avoidable, even negligent mistakes and injured patients are entitled to be compensated for their losses, and perhaps for some pain and suffering.

The defensive strategist dominates medical practice today. Doctors use excessive tests and other procedures to avoid lawsuits, and stay out of certain areas of medicine—most notably obstetrics. The net result is higher costs for medical care.

In 2006, the Congressional Budget Office reported that states that had placed limits on malpractice awards in 1986 saw health care spending per person decline steadily through 2000, reaching lower levels than in states without caps.

One example is Texas. According to Grace-Marie Turner, president of the non-partisan Galen Institute in Washington, D.C., Texas is showing how to get malpractice costs under control. Since the state legislature passed a series of malpractice reforms several years ago, medical malpractice costs have plummeted, and the number of doctors moving into the state has soared.

“There is a cause and effect here,” Ms. Turner told me. “Premiums with one malpractice insurance company have fallen by more than a third, allowing doctors and hospitals to reduce their costs. About 7,000 physicians have moved into Texas over the last four years, and the state has a backlog of applications from other physicians wanting to move there.”

Congress could use health reform legislation to give incentives to states to reduce the costs that lawyers’ fees place on the health system, while still protecting patients. Fear of lawsuits can diminish patient safety, as hospitals and physicians become wary of keeping records of errors—records that could result in safer procedures being put in place.

Approaches to lowering costs of malpractice insurance include:

Limiting non-economic and punitive damages. Juries now award patients not just real economic damages, representing lost opportunities, but also non-economic compensation for pain and suffering, or mental distress, or punitive damages to teach doctors a lesson.

Limiting lawyers’ fees. Most lawyers take malpractice suits on a contingency basis, where their fees are percentages of their clients’ awards. This encourages them to seek larger awards.

Modifying or eliminating “joint and several liability.” Now, even if physicians or hospitals are only partly responsible for damages, they can be required to pay the entire amount.

Shortening the statute of limitations. Patients normally have years after the injury happened or was discovered in which they can file lawsuits. This interval could be shortened.

In his speech before the American Medical Association in Chicago on June 15, President Obama specifically acknowledged the problem: “Now, I understand some doctors may feel the need to order more tests and treatments to avoid being legally vulnerable. That’s a real issue.”

All Americans, even those receiving satisfactory treatment from their doctors, have to pay more because of the threat of lawsuits. As we look at reducing healthcare costs, Congress should not only look at cutting reimbursements to doctors. Lawyers should take cuts too.